Private Equity Real Estate Fund Performance: A Comparison to REITs and Open-End Core Funds

Abstract

We provide a comprehensive examination of the return performance of closed-end, private equity real estate (PERE) funds relative to the performance of listed real estate stocks (real estate investment trusts [REITs]) and the NCREIF ODCE fund index. We first match each PERE fund in our sample and its realized internal rate of return and equity multiple with the return that would have been earned by an LP investor on an investment in the designated benchmark over each fund’s investment horizon. Overall, we find that closed-end PERE funds have underperformed listed REITs. In contrast, we find similar overall performance between PERE and the NCREIF ODCE fund index. We also examine the determinants of the relative performance spread between the PERE funds and the equity REIT index and find that the spread widens with interest rate environment variables (Treasury yields and default spreads) and narrows with broad macroeconomic performance indicators (growth rate of GDP). Key Findings ▪ Closed-end PERE funds underperform listed REITs—both on average and by the percentages of individual funds. ▪ The performance spread widens with interest rate environment variables (Treasury yields and default spreads) and narrows with broad macroeconomic performance indicators (growth rate of GDP). ▪ The overall performance between PERE and the NCREIF ODCE fund index is similar.